Brace for Brexit 17: Call off stock arrangements
Exporting businesses based in Great Britain may need to register for VAT in other EU countries from 1 January 2021, and businesses that sell into the UK may need to register here.
I considered the issues of VAT and call-off stock in May this year. It was a hot topic at the beginning of 2020 because new EU rules were introduced in terms of record-keeping and procedural issues. But those record keeping challenges and my previous articles will become out of date from 1 January 2021 because the VAT concessions for call off stock only apply to EU suppliers.
A business located in Wales manufactures ice cream and has one customer in Ireland who is registered for Irish VAT. A stock of ice cream is held in Ireland by the Welsh supplier, which they own until the customer needs it and calls it off as and when required.
This is a call-off stock situation and means that the Welsh manufacturer does not currently need an Irish VAT number. A sales invoice is raised each time the customer calls off the stock and the customer accounts for the VAT on his own return.
Changes on 1 January
The call-off arrangements will end on 31 December 2020 because businesses in Great Britain (England, Wales and Scotland) will no longer adopt EU VAT rules.
Our Welsh manufacturer’s ice cream will therefore be subject to import VAT and duty when it arrives in Ireland, or any other EU country for that matter. The manufacturer must register for VAT in Ireland, complete Irish VAT returns and charge domestic VAT on future sales. The fact that the goods will be sold to a known VAT registered customer in Ireland is no longer relevant.
The good news is that our Welsh manufacturer will be able to claim input tax on expenses incurred in Ireland, subject to local rules which may apply in that country (eg input tax blocks on business entertaining expenses in the UK).
Claiming input tax on a VAT return is an easier way of recovering VAT than the alternative method of submitting a 13th Directive claim to the Irish tax authorities. (See the VAT refunds for overseas expenses in the Brace for Brexit series.)
Depending on the terms of any trade deal agreed between the UK and EU, the imports into Ireland from GB will be subject to customs duties and the duty will form part of the cost of goods sold figure.
Overseas business – nil registration threshold
Why must our manufacturer register for VAT in Ireland? What if his total annual sales of ice cream will be less than the Irish VAT registration threshold? The reason is because an overseas business only gets a threshold in its own country, not for supplies it makes in other EU countries. A zero threshold applies in such cases.
EU businesses making supplies in GB
The opposite situation will also apply from 1 January 2021: EU suppliers holding call-off stock in GB will need to register for VAT in the UK. HMRC has accepted requests for registration since 1 October, with the registrations going live on 1 January 2021.
It will be a challenge for many GB businesses to register for VAT in another EU country. Each country has its own quirks in its VAT legislation. For example, many countries require monthly VAT returns to be submitted and paid (such as Germany where the annual VAT liability exceeds €7,500).
I understand that 19 of the 27 EU member states require non-EU businesses to appoint a local tax representative based in that country. That tax representative is jointly and severally liable for any VAT debts of the non-EU supplier in that country.
As the time continues to tick down to 1 January 2021, these challenging issues need to be considered as soon as possible.